Intel’s big strategy shift and AMD’s opportunity

The past decade has seen a major shift in the nature and structure of Intel's …

At the Intel Investor Conference on Tuesday, Intel's Paul Otellini opened his remarks by saying this would be a different kind of talk than he normally gives at the annual meeting. Instead of talking about specific products, technologies, or business improvements, Otellini took a step back to survey the results of the major restructuring that Intel has been implementing since 2006. This change has turned Intel from a company that makes chips into a company that sells platforms, software, and services—the whole stack.

Up the stack

"The company has been transformed in a way that is remarkable, and in the aggregate reflects a different kind of company than we've ever had before," Otellini said. Much of this transformation was about getting costs down (read: layoffs) and boosting per-worker productivity, but the most interesting and important part of the story was the software and services piece.

Early on in his talk, Otellini set the tone by naming silicon process technology and software as two of Intel's key differentiators from the competition. At a later point in the talk, he went on to explain that back in 2000, "we were just a chip company... over the years we've added a number of things. We've got platforms, software, and services increasingly being added."

The slide above illustrates just how drastic the changes of the past decade are. The chipmaker has made a number of software acquisitions, and at this point software professionals account for 22 percent of Intel's payroll (excluding IT and manufacturing).

(Note: Wind River falls into the "services" category in the chart above because, in addition to its real-time OS, the division has a large services group for OEMs that want to do embedded and handheld software and user interfaces.)

Otellini made the claim that Intel wants to eventually be in a position to deliver software and services on top of its x86 silicon in every market segment—from servers to desktops and mobiles to embedded.

For the mobile and embedded markets in particular, Otellini talked up MeeGo as a major part of that push into new markets. Intel sees MeeGo in smartphones, TVs, and cars. Absent from the list of potential MeeGo applications was the tablet.

It's funny who you run into at the top of the stack

It's not that Otellini didn't mention the tablet as form factor—he definitely did. At one point in his speech he briefly turned to the topic of the tablet and said that "on the scale of the PC industry, [the tablet] is relatively insignificant." He went on to say that he doesn't think that tablets will take market share from other devices—rather, "they're additive."

Even if you agree with Otellini that tablets are additive and are consumption devices, "relatively insignificant" is nonetheless a very odd way to describe a product category that recently enjoyed the fastest ramp-up to $1 billion in sales of any product in history, and it's hard to believe that Otellini actually believes this. It's also the case that later in the day Intel client platform chief Mooly Eden was touting a tablet mockup that looked a lot like an iPad.

When Intel's partners start putting out multitouch tablets with Intel software and hardware inside, this will surely put a strain on the Intel-Apple relationship. Apple can't be pleased about having to engineer around Arrandale's deficient integrated graphics, and the company is rumored to be talking to AMD, possibly for a spot in the iMac.

An opening for AMD?

The Apple situation is illustrative of what Intel's future looks like: as Intel moves up the software stack and produces more user-facing technology, the company will increasingly go into competition with its OEM customers. This is inevitable, and it actually presents an opportunity for AMD, a company that, like Intel circa 2000, is "chips only."

AMD has jettisoned every part of its business except its core PC and server products, and that weakness may turn out to be a strength if Intel starts competing with its customers' products. OEMs may well decide that they have more opportunity to differentiate themselves by pairing an AMD platform with some in-house engineering than by rebadging an Intel-made hardware/software combination and selling it at a markup.

Any way you slice it, AMD is a lot less threatening to vendors and OEMs at levels of the stack above the hardware layer, simply because the smaller chipmaker doesn't have a presence anywhere else. Parties can do business with AMD free of the uncomfortable friction that comes from being involved with an actual or potential competitor. If AMD can continue to execute and can close some of the performance gap with Intel, it may be able to turn the situation to its advantage.